Business economists expect real GDP growth of 2.4 percent in 2013, with slightly faster growth of 3.0 percent in 2014. The May Outlook Survey from the National Association of Business Economics (NABE) found that output estimates for this year and next have not changed from what was predicted three months ago in the February survey.

Beyond the headline figure, there were improvements in some of the key components of GDP. Specifically, respondents expect improved consumer spending (2.3 percent in 2013), residential investment (15.0 percent), nonresidential structure investment (4.6 percent), and business inventories. Regarding the housing sector growth rate, new residential starts are expected to average 1 million in 2013, rising to 1.18 million in 2014. In contrast to these positive contributors to real GDP, shrinking government budgets are expected to fall by 2.3 percent in 2013 and 0.9 percent in 2014, suggesting that they will continue to be a drag on growth.

Industrial productoin should increase 3.1 percent in 2013 and 3.5 percent in 2014. This would suggest a pickup from the most recent year-over-year growth rate of  1.3 percent.

Businesses are expected to add 168,000 nonfarm payroll workers per month in 2013, increasing to 198,000 per month in 2014. This modest growth in hiring, though, is not anticipated to bring the unemployment rate down much from its current 7.5 percent rate, with business economists forecasting the unemployment rate to average 7.1 percent in 2014.

On financial matters, business economists say that pricing pressures shuld be modest, up 1.8 percent in 2013 and 2.0 percent in 2014. Each of these numbers are slightly lower than what was forecast in February, most likely due to lower energy costs in the most recent data. More importantly, they are also consistent with the Federal Reserve’s stated goal of keeping inflation at or below 2 percent. Oil prices are predicted to average $93 per barrel in 2013 and $95 per barrel next year.

Chad Moutray is the chief economist, National Association of Manufacturers. Note that he is also a former board member of NABE and a current participant in NABE’s Outlook Survey.

Here is the summary from this week’s Monday Economic Report:

Some of the indicators released last week helped confirm the belief that the U.S. economy has started 2013 on a stronger-than-expected note. First, industrial production rose 0.8 percent in February, led by strong demand for automobiles and other goods. This was a decent turnaround from much weaker numbers in January, with all but three major manufacturing sectors experiencing higher production. Second, retail sales rose a surprisingly healthy 1.1 percent in February. While much of that growth stemmed from higher gasoline prices and higher motor vehicle sales, the data suggested modest growth overall, with Americans continuing to make modest gains in purchases despite headwinds from higher taxes and fiscal uncertainties.

At the same time, those headwinds appear to be having some negative impacts. Industrial production was increasing at a 5.1 percent year-over-year pace at this point last year; today, that rate is 2 percent. That example can be replicated in so many of the recent indicators. For instance, the NAM/IndustryWeek Survey of Manufacturers reported an uptick in optimism in the latest survey, with sales expected to grow 2.3 percent over the next year. That represents an improvement from three months ago (when the rate was 1.0 percent), and the percentage of respondents who were positive about their own company’s outlook rose from about 52 percent in December to roughly 70 percent today. But this is a come-down from the stronger pace of nearly 5 percent growth in annual sales expected in March of last year (when approximately 89 percent were positive in their outlook). Clearly, more work still needs to be done to get the economy moving. (continue reading…)

Here is the summary for this week’s Monday Economic Report:

The Philadelphia Federal Reserve Bank’s Business Outlook Survey continued to show significant weaknesses in the manufacturing sector in its district. There were some areas of progress, including shipments and employment, and respondents were mostly positive about higher activity this year. Yet, the composite index was sharply lower on reduced new orders, dragging the overall sentiment lower. The New York Federal Reserve Bank’s Empire State Manufacturing Survey showed similarly worrisome figures. Meanwhile, although the Conference Board’s Leading Economic Index—which foreshadows future U.S. economic activity—was higher, sluggish hiring and sales growth continued.

Despite these troubling indicators, at least one source reports that manufacturing production is on the upswing. Although the Markit Flash Manufacturing Purchasing Managers’ Index (PMI) for the United States edged slightly lower from 55.8 in January to 55.2 in February, the output measure rose to its highest point since March 2011. Even in this survey, however, the pace of growth for new orders, employment and raw materials prices slowed down somewhat. Nonetheless, the Markit data tend to find that the U.S. economy is growing moderately, despite a number of persistent headwinds. In contrast, Flash PMI data for the Eurozone suggest that its problems are far from over. On the positive side, European exports to the United States and Asia have improved.

Other data points mainly focused on housing and inflation. The residential sector has been one of the faster-growing segments of the U.S. economy over the past year. This has been welcome news for many manufacturers that have been eager for this still-struggling sector to recover. While the headline number for housing starts was lower in January, this was mainly due to decreases of multifamily starts, which have risen significantly year-over-year even with last month’s decline. New single-family residential construction rose to its highest point since July 2008, and we have seen single-family starts rise 20 percent over the past 12 months. Permits have also been on a long-term upward trend.

Regarding prices, consumers and manufacturers have benefited from an easing in inflationary pressures over the course of the past year, mainly due to falling energy costs. Price increases have been modest overall, with core inflation at both the consumer and producer level below the Federal Reserve Board’s goal of 2 percent. In January, consumer food prices were higher, particularly for fruits and vegetables, but gasoline prices were lower. However, the recent rise in crude petroleum prices could lead to higher prices for finished energy and other goods in coming months if these are sustained. But, the forecast continues to be for moderate inflation.

This week, there will be several reports released on the current state of manufacturing. On Friday, the Institute for Supply Management will release its PMI report, and it is expected to show the sector growing slowing, with data not much different than the month before and possibly reflecting some pullbacks in activity. This would be in contrast to the Markit data, but it would be consistent with some of the regional studies. There will be regional sentiment surveys released from the Chicago, Dallas, Kansas City and Richmond Federal Reserve Banks this week. Other highlights include new releases on construction spending, consumer confidence, durable goods orders, personal income and a revision to fourth-quarter 2012 real GDP. Given recent data that have come out, look for real GDP to be revised higher, up from the earlier estimate of -0.1 percent to around 0.5 percent, according to consensus forecasts.

Chad Moutray is the chief economist, National Association of Manufacturers.

Below is the summary from this week’s Monday Economic Report:

The Federal Reserve noted the U.S. economy has seen some modest improvements during the past month, with a number of indicators highlighting this progress. Hurricane Sandy had an impact, both in slowing down activity in October and increasing it in November in its aftermath. Industrial production rose 1.1 percent in November, recovering from October’s 0.7 percent decline, with repairs from the storm possibly explaining at least some of these gains. Similarly, retail sales also rebounded for the month, led by strong auto sales and spending on appliances, building materials, furnishings and clothing. Lower petroleum costs also helped to ease Americans’ pocketbooks, with gasoline station sales down 4 percent in November on lower prices.

Despite the optimistic news on production and sales, major headwinds confront businesses and consumers. Manufacturing production remains 0.6 percent below July’s levels, a reflection of the weaker economic environment during the past few months. These headwinds mostly stem from uncertainties related to the fiscal cliff and the impact of a slowing global economy on international orders. The trade balance widened in October on reduced exports and imports. While year-to-date manufactured goods exports are higher than last year, they reflect significant easing in trade volumes, resulting from a weakened economic environment among our major trading partners. Meanwhile, in the United States, small business owner confidence plummeted last month on worries about the political environment and diminished expectations for sales, earnings, inventories and capital spending.

High unemployment rates and challenges to the U.S. and global economies are persistent worries for the Federal Reserve Board. The Federal Open Market Committee (FOMC) voted to purchase $85 billion in mortgage-backed and long-term securities each month in an effort to push down long-term interest rates and stimulate economic growth. Moreover, it will continue to do so until the unemployment rate hits 6.5 percent or forecasted inflation exceeds 2.5 percent. These economic indicator targets replace earlier language about maintaining these policies through mid-2015. Still, in practicality, the Fed does not expect the unemployment rate to reach 6.5 percent until 2015, according to its forecasts, suggesting that it will continue to pursue these policies for the foreseeable future.

The fact that inflation remains in-check, at least for now, facilitates the Fed’s willingness and ability to stimulate growth. Consumer and producer pricing data released last week back this up, with lower energy costs helping to ease cost pressures. Core consumer prices have risen 1.8 percent over the past 12 months, and manufacturing raw material costs—down 1.2 percent in November—have risen just 1.0 percent year-over-year. These rates are significantly lower than earlier in the year.

This week, we will learn more about regional manufacturing activity and housing. Surveys from the Kansas City, New York and Philadelphia Federal Reserve Banks—which all indicated a contraction last month—will likely show the sector continuing to struggle. Housing starts data, on the other hand, should continue to illustrate strength in the residential construction sector. Other highlights for the week include data on leading indicators, a second revision to GDP and personal spending.

Note: Due to the holidays, the next report will be released on Wednesday, December 26. There will be no report issued during the week of December 31. The schedule will resume on Monday, January 7, 2013.

Chad Moutray is the chief economist, National Association of Manufacturers.

Yesterday, the Bureau of Labor Statistics (BLS) reported that producer prices for finished goods were 1 percent lower in May, following a 0.2 percent decline in April. Lower energy and food costs were largely responsible for the decrease. Energy prices, for instance, were 4.3 percent lower. Excluding food and energy, core inflation at the producer level was up 0.2 percent.

Lower energy costs also pushed intermediate and crude goods prices lower, down 0.8 percent and 3.2 percent respectively.

Manufacturers have benefited from the easing in inflation, with raw material prices down 0.6 percent in May. With recent declines, the year-over-year increase in prices has fallen to 0.9 percent.

Sectors with the largest monthly increases in prices include wood products (up 1.1 percent), textile products (up 0.6 percent), chemicals (up 0.5 percent) and furniture manufacturing (up 0.4 percent). Petroleum and coal manufacturing costs led the decrease, down 3.9 percent for the month. Other declining sectors were primary metals (down 1.3 percent) and food manufacturing (down 0.6 percent).

Meanwhile, consumers have also seen reduced food and energy costs. According to BLS data released this morning, the consumer price index fell 0.3 percent in May. It had been unchanged in April. Gasoline prices were down 6.8 percent, with overall energy costs down 4.3 percent. Food costs were flat.

Core inflation rose 0.2 percent for the month, or 2.3 percent since May 2011. This remains above the Federal Reserve’s stated target of 2 percent. With that said, the Fed appears to be less worried about inflation right now, and it is instead more concerned with global economic growth. In addition, as this month’s data  suggests, overall inflationary pressures tend to be easing, especially with energy costs significantly lower.

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Economic Analysis said that personal income and spending rose modestly in January, up 0.3 percent and 0.2 percent respectively. This is the second consecutive month of gains in personal income; however, real disposable income in January fell by 0.1 percent. Personal spending, which was flat in December, rose on higher goods purchases. The consumption of services was unchanged.

Durable goods purchases increased 0.9 percent, building on December’s 0.5 percent jump. Meanwhile, nondurable spending was up 0.4 percent, a reversal from the declines of November and December. Over the course of the past year, personal consumption has risen 3.8 percent. This is a slower rate than the 4.4 percent growth between January 2010 and January 2011, but still a positive trend.

Manufacturing sector wages increased by $7.9 billion for the month to $730.3 billion, its third consecutive month of gains. The savings rate is currently 4.6 percent, slightly lower than the 4.7 percent rate of December. (Note that some of the data, including the savings rate, were revised upward from previous reports due to the inclusion of additional information. The December savings rate, for instance, was originally reported to be 4.0 percent.)  

Overall inflation appears to be modest, with the personal consumption expenditures deflator up 0.2 percent for January. On an annual basis, this suggests consumer inflation of 2.4 percent, or 1.9 percent if food and energy costs are excluded. Prices were nondurable goods increased 4.5 percent year-over-year, reflecting some easing from past months. Whereas, durable goods were 0.4 percent lower than they were this time last year.

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Economic Analysis observed flat consumer spending in December 2011, with personal income up 0.5 percent. The unchanged consumption figures followed five consecutive months of growth, and when adjusted for inflation, real consumption declined by 0.1 percent.

Goods purchases in the month were negative, with spending on both durables and nondurables 0.4 percent lower. Consumers did, however, increase their purchases on services, which rose by 0.2 percent. Still, the longer-term trend for consumption has been positive, as it is up 3.9 percent since December 2010.

Real personal disposable income rose 0.3 percent for the month. The income growth was the fastest pace since February 2011. Manufacturing sector wages increased by $7.4 billion for the month to $707.7 billion, reversing the decline experienced in November.

With strong growth in income and no change in spending, the overall savings rate improved from 3.5 percent in November to 4.0 percent in December. It was 5.2 percent in December 2010, reflecting its general movement downward in the second half of 2011.

There appears to be little inflation in the personal consumption numbers. In fact, while prices rose 0.1 percent for all goods and services, they fell by 0.2 percent for both durable and nondurable goods. Prices have fallen for several months now for nondurables, and this is the third consecutive month of declines for durables.

This suggests a limited ability to pass on any of the higher raw material costs experienced at the producer price level. Year-over-year data, though, suggest greater pricing pass-through for nondurables, with prices up 4.8 percent since December 2010 on nondurable goods compared with a decline of 0.5 percent on durables. The overall inflation rate for all goods and services since last year is 2.4 percent.

Chad Moutray is chief economist, National Association of Manufacturers.

BusinessWeek examines an issue that was in the news a lot about a year ago, but seems to have slipped away — deflation. Government borrowing, spending, the reviving economy would all suggest inflation, right?

Maybe not. From “Poor Pricing Power Poses Problems for the U.S.“:

Some economists and analysts see reasons to worry about the opposite scenario—a period of deflation if companies feel compelled to lower prices to jump-start demand in a sluggish economic recovery burdened by high unemployment. Consumers initially embrace falling prices, but if it becomes deep and pervasive enough, deflation will eventually push employers to cut wages and ax jobs, driving worried consumers into complete retreat. Perhaps most dangerous, deflation hikes the cost of repaying debt by boosting the value of the dollar.

David Bogoslaw, the reporter, talked to the NAM’s economist.

David Huether, chief economist for the National Association of Manufacturers, cites diminished pricing power in sectors related to housing—nonmetallic minerals such as cement, bricks, and glass, as well as furniture makers. But food and chemical manufacturers, which together make up more than 27% of the manufacturing sector, have been able to raise prices over the past year.

Food prices are up 2%, and that’s only partly due to the pass-through of higher energy costs that have boosted transportation expenses for manufacturers, he says. Energy cost increases are also contributing to the 4% year-over-year rise in margins for merchant wholesalers, the middlemen between food producers and retailers.

A good lead editorial in today’s Washington Post, acknowledging the temptation to dismiss the G-20 confab in Pittsburgh as another “multilateral gabfest,” but finding merit in President Obama’s message about “rebalancing” the global economy. From “Balancing Act — Mr. Obama’s wise message for the Group of 20“:

His interest in a “framework for sustainable and balanced growth” is rooted in reality: For many years, Germany, Japan and China have grown by producing more than they consume and by exporting their goods to the United States, which has chronically consumed more than it produces. Oil-exporting nations have had a similar unbalanced relationship with the United States. The result is exporters’ accumulation of dollar reserves and their investment in the United States — subject to occasional bubbles and busts, an especially damaging example of which we have just experienced. You could say that the recession, which has spurred a major increase in U.S. household savings, was nature’s way of smoothing out these imbalances — albeit at tremendous financial and human cost.

U.S. consumers will need years to recover from the impact — and may never again drive global growth as they have in the recent past. It is therefore in both this country’s interest and that of its trading partners to adjust their growth models. The United States must save a bit more and become less dependent on imports; Germany, Japan and China must consume a bit more and reduce their export dependence. As Mr. Obama told CNN on Sunday: “We can’t go back to the era where the Chinese or the Germans or other countries just are selling everything to us, we’re taking out a bunch of credit card debt or home equity loans, but we’re not selling anything to them.”

Agreed. The test for the Administration is to match its wise message with wise action. We’ve yet to see much action to support U.S. exports, such as pushing Congress to enact the pending free trade agreemens with Colombia, Panama or South Korea. And some of the proposed tax policies — ending deferral, for example — would undermine U.S. global investment.

Then there’s this from Reuters, “U.S. issues $7 trillion debt, supply to stabilize“: “NEW YORK (Reuters) – The U.S. government will have issued $7 trillion in bonds by the time the current fiscal year ends next week, but it expects the debt deluge to stabilize by mid 2010, a Treasury official said on Wednesday.”

All this government borrowing, all the government spending, doesn’t it invite inflation? Americans aren’t going to save more if they anticipate rising inflation.

(Hat tip: Glenn Reynolds.)

His Washington Post column today, “A New Specter: Deflation”

His new book, “The Great Inflation and Its Aftermath”

Ha.

More seriously, can’t think of a Post column Samuelson has written that wasn’t worth reading; he puts economic issues in understandable terms and insightful context.

The new book comes out tomorrow, and it’s primarily a history about the ’60s and ’70s with an analysis of how the inflationary period shapes our nation and economy today. (Or so we gather.) You can read Chapter 1 here.

For D.C. area residents, he speaks at the Politics & Prose bookstore November 15th.